Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Loading...
Most Recent Stories

THE STOCKS VS ITALIAN YIELDS CONUNDRUM

Here’s a chart that might surprise you.  Over the last three months there is a pretty tight relationship between Italian bond yields and the S&P 500.  Now, Italian yields should be the ultimate harbinger of doom in the EMU, but equity markets aren’t too phased by this.  What gives?

There’s 1 of 2 things going on here in my opinion;  1)  The equity market is over the Euro crisis and is certain that the EMU governments will fix this disaster.  Or 2) There is now a disconnect between reality and perception.  Which one is it?  Perhaps a bit of both?   I think the markets have now become comfortable with the idea that the EMU leadership is going to do everything in their power to avoid the worst case scenario.  The worst case scenario is the one that ex-Europe needs to be most concerned about as the contagion from a banking crisis could be disastrous.  If this risk has really been taken off the table then markets are right not to panic every time news breaks out of Europe.

So, if we remove the worst case scenario and focus on reality we can likely conclude that Europe will remain entangled in a nasty economic environment.  If austerity is the continued strategy of choice (which appears clear) then the obvious question is – are the markets pricing in the possibility of prolonged and perhaps deep economic weakness in Europe?  That part is less clear.  Either way, markets appear almost uncomfortably comfortable with this uncertain environment….One which is almost certain to end badly whether it all blows up on them or just devolves into a lost decade as they dig through the wreckage that is an inherently flawed monetary union…..

Comments are closed.